ACC203 – A newly established brewing company in Sydney

A newly established brewing company in Sydney, Cool Brew Ltd, produces its main product, Cool Bay Draught, in 300 millilitre bottles.

There are two production departments: Mixing and Bottling. The manufacturing costs for each department during March 2013 were tabulated below.

Mixing

Bottling

Direct materials

$ 113

000

$ 17

000

Direct labour

15

000

6

000

Manufacturing overhead

32

000

9

000

In March 2013, Cool Brew Ltd produced 48 000 litres of Cool Bay Draught that was bottled into 160 000 bottles.

There were no beginning and ending work-in-process inventories. Required:

Calculate the cost per bottle for Cool Bay Draught;

Prepare the journal entries to record the production costs for March 2013, assuming that the costs of Mixing and Bottling Departments are charged to their respective work-in-process inventory accounts.

Question 2

During October 2013, Kent Ltd’s material purchases amounted to 6 000 kilograms at a price of $7.40/kg.

Actual costs incurred in the production of 2 000 units were as follows.

Direct material

$ 31 080

$7.40/kg

Direct labour

118 035

$18.30/hour

The standards for one unit of Kent Ltd’s product are as follows.

Direct material

Direct labour

Quantity: 2 kg/unit

Quantity: 3.5 hours/unit

Price: $7.20/kg

Rate: $18/hour

Required:

Calculate the following variances and indicate whether each variance is favourable or unfavourable:

Direct material price variance;

Direct material usage variances;

Direct labour rate variance;

Direct labour efficiency variance.

Question 3

Sam, the manager of a local ice cream shop called Super Scooper, is disappointed at the loss-making financial performance of his newly created fresh fruit juice counter.

Sam has prepared following financial analysis for the year just ended.

Sales

$ 67 500

Less: Cost of fruit

(30 000)

Gross profit

37 500

Less: Operating expenses

Wages of counter staff

$ 18 000

Consumables (e.g. cups and straws)

6 000

Utilities (allocated)

4 350

Depreciation of counter equipment and furnishings

3 750

Depreciation of building (allocated)

6 000

Super Scooper manager’s salary (allocated)

4 500

Total operating expenses

(42 600)

Loss on fresh fruit juice counter

$ (5 100)

Required:

Evaluate Sam’s financial analysis for the year just ended;

Provide a correct profit and loss analysis to financially assess whether the fresh fruit juice counter should be continued.

Question 4

ABC Ltd has provided the following data relating to its two most popular models of an electronic product.

Standard

Deluxe

$/unit

$/unit

Selling price

70

120

Direct material

15

22

Direct labour

10

30

Manufacturing overhead @ $30/machine hour

30

60

Monthly demand (units)

40 000

24 000

The fixed manufacturing overhead component included in the above unit costs is $20 per machine hour.

On the very first day of June, a major piece of manufacturing equipment was damaged. It would take two weeks for replacement parts to arrive from Switzerland.

Consequently, there would be only 60 000 machine hours available in June to manufacture the two models of the electronic product.

Required:

Given the limited machine hours available in June, conduct an appropriate financial analysis.

Based on the above financial analysis, determine how many units of each product should be produced in that month to maximise ABC Ltd’s profitability.

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